WASHINGTON — The U.S. economy grew at an annual rate of 2.1% in the final quarter of last year, but damage from the spreading coronavirus is likely depressing growth in the current quarter and for the rest of the year.
The overall pace of growth in the October-December quarter was unchanged from its initial estimate a month ago, though the components were slightly altered, the Commerce Department said Thursday. A slowdown in business restocking was less severe than first believed. But a cutback in business investment in new equipment was more of a drag on growth than initially thought.
Economists have been downgrading their forecasts for the first quarter of this year as fears of the impact of the virus has escalated. Stock markets have plunged this week on news that the number of coronavirus cases worldwide has now topped 81,000.
On Thursday, the Dow Jones Industrial Average plunged 4.4%, intensifying a weeklong market rout as investors worried that the coronavirus outbreak will seriously damage the global economy.
The virus, which started in Wuhan, China, has spread to more than 30 countries, including the United States, Italy and South Korea.
Vital supply chains from China that companies in the United States and elsewhere depend on have been disrupted, and that problem is expected to worsen. Microsoft and Apple have warned about adverse impacts from the supply chain disruptions.
U.S. companies with sizeable operations in China are being impacted directly. McDonald’s has closed hundreds of stores there. Starbucks has closed more than half of its locations. While it’s begun to open stores in China where the outbreak has abated, it is now spreading faster outside of China.
In a report to investors Thursday, Goldman Sachs said the fallout from the virus would likely wipe out all the earnings growth it had been predicting for 2020 if the virus continues to spread. David Kostin, a strategist for the firm, said his baseline estimate is now for zero growth in S&P 500 earnings per share this year, down from an earlier forecast of 5.5% earnings growth.
The rising fears about the economic damage the virus can do have inflicted the worst losses on U.S. stocks in two years, less than a week after Wall Street was hitting record highs. To try to demonstrate the government’s resolve to deal with the spread of the virus, President Donald Trump announced Wednesday that he was appointing Vice-President Mike Pence to take the lead in co-ordinating U.S. actions.
But economists are warning that if the virus turns into a global pandemic, the impact could be severe enough to push the global economy and the U.S. economy into recessions.
“The global economy was already very weak because of the trade war, and it would not take much to shove it on its heels,” said Mark Zandi, chief economist at Moody’s Analytics.
Zandi said his baseline forecast, which optimistically assumes that the outbreak remains largely contained in China and dissipates by spring, projects that global growth will slow to 2.4% this year — 0.4 percentage point lower because of the virus.
He expects the annual pace of U.S. growth to slow to 1.3% in the current quarter, down by 0.6 percentage point because of the virus. He said for the year, he is forecasting U.S. growth of 1.7%. That would be the slowest annual growth of the Trump presidency and far below the 3%-plus growth that Trump had promised to deliver during the 2016 campaign.
Because of the market turbulence and the rising potential of adverse effects from the virus, expectation of interest rate cuts by the Federal Reserve have risen. The CME Group tracker of investment sentiment has put the possibility of a quarter-point cut as early as March at 37%, up from just 7% a week ago.
Diane Swonk, chief economist at Grant Thornton, said the possibility of two rate cuts this year “has gone up dramatically” because of the virus threats.
Until recently, many economists had expected that the Fed could keep rates unchanged the whole year after three rate cuts last year, when it was struggling to cushion the impact of Trump’s trade war with China and a slowing global economy.
The estimated 2.1% annual growth pace in the October-December quarter followed an identical gain in the third quarter. For 2019 as a whole, the economy grew by 2.3%, the slowest pace since a 1.6% increase in 2016.
Trump is counting on a strong economy to propel him to re-election in November. But for each year of his presidency, economic expansion has fallen below the levels he had promised to deliver during the campaign, when he derided the growth rates achieved under President Barack Obama.
While growth did jump to 2.9% in 2018, propelled by the 2017 tax cut and increased government spending, it returned last year to near the average achieved by Obama.
Thursday’s report from the Commerce Department was its second of three estimates of economic growth for the October-December quarter. It showed that consumer spending, which accounts for 70 per cent of economic growth, grew at a 1.7% annual rate in the fourth quarter, down from an initial estimate of 1.8% growth.
Business investment on new plants and equipment was also lower, falling at a 2.3% rate, worse than the initial estimate of a 1.5% drop. These weaker numbers were offset by more business restocking of store shelves and upward revisions to residential investment and federal government spending.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
